Foreclosure and Credit Score

A home foreclosure can reduce your credit score and affect your ability to qualify for new loans, including a new mortgage. How does a foreclosure affect your credit score? How long does a foreclosure stay on your credit? Are there things you can do to avoid foreclosure?

What is a foreclosure?

When you have a mortgage on a property, the mortgage is actually a lien on the property. When a borrower fails to meet the obligations of the mortgage, they enter default. While this typically means missed mortgage payments, it can also include the failure to maintain mortgage insurance or maintain the upkeep of the property. Foreclosure is the process that occurs when a lender takes ownership of the property after the borrower enters default.

The foreclosure process has multiple stages that include:

• Payment default: While a foreclosure can begin as soon as the first missed mortgage payment, default typically does not occur until after several payments are missed.
• Notice of default: After 90 days (this timeframe can vary by lender), a Notice of Default is sent to the borrower offering a potential resolution to avoid foreclosure. This stage is considered pre-foreclosure.
• The lender takes possession: If the borrower is unable to make suitable arrangements to rectify the default, the lender takes possession of the property.
• Notice of trustee’s sale: The lender is required to record and publish an impending sale with the county and publish the notice in local newspapers.
• Trustee’s sale: The home is listed and placed for sale through public auction.
• Transfer of ownership to the lender: If the home does not sell at auction, the ownership of the property transfers to the lender.

How does a foreclosure affect your credit?

A foreclosure appears on your credit report within a month or so after the initial foreclosure proceedings begin. While a foreclosure does have a considerable impact on your credit score, the months before foreclosure are likely to cause a greater impact. To reach the foreclosure process, the borrower typically misses at least 3 to 4 monthly payments. Missed payments account for the biggest drop in a borrower’s credit score, so by the time the foreclosure hits your account, the damage is already done.

How long does foreclosure affect your credit?

As mentioned above, a foreclosure appears on your credit report within a month or two of the foreclosure proceedings. This foreclosure entry remains on your credit report for seven years from the time of your first missed monthly payment.

How do lenders see a foreclosure?

While lenders typically look at your overall credit score, a foreclosure entry is often viewed negatively, second only to bankruptcy. A foreclosure entry will keep you from approval by many lenders, despite meeting their credit score requirements and other lending criteria.

What are the tax consequences of a foreclosure?

When it comes to taxes, a foreclosure is treated the same way as the sale of a property. A foreclosure often means the cancellation of your outstanding debt. You are obligated to report this debt cancellation as ordinary income in Box 2 of a 1099-C form that you receive from the lender when this occurs. You are also required to calculate the capital gain from the foreclosure.

Ways to avoid foreclosure

Unfortunately, life can throw curveballs, making it difficult to make monthly obligations, such as your mortgage payment. Missing multiple payments will lead to a foreclosure if simply ignored. However, there are things you can do to help avoid foreclosure and protect your credit score.

1. Contact your lender immediately

If you have experienced a temporary setback, such as a loss of employment, contact your mortgage company immediately to let them know what the situation is. Your lender may be willing to work out a repayment plan that allows you to catch up on missed payments by adding a portion of them to your regular monthly payments. Maintaining regular contact with your mortgage lender will show that you are committed to taking care of your obligations. In some cases, your lenders may also offer one of the additional options below.

2. Request a forbearance

If you are experiencing temporary financial struggles, you may be able to request a mortgage forbearance from your lender. This forbearance places a temporary hold o your mortgage payments for a specified time period. However, at the end of it, you are required to pay the full amount accrued during the forbearance period or commit to a repayment plan established by your lender.

3. Consider a loan modification

A loan modification works similar to a loan refinance and can help to make your current monthly payments more manageable. In many cases, this modification occurs by extending your loan term, allowing for a reduction in monthly payments. Ask your lender if a loan modification is an option.

4. Seek advice from a HUD-certified counselor

If you are feeling overwhelmed, the Department of Housing and Urban Development (HUD) offers housing counseling throughout the country. Their services are typically provided at little to no cost, and they can help walk you through trying to halt the foreclosure process and save both your property and credit.

5. List your home for sale

If you are unable to afford your monthly mortgage payments, putting your home up for sale may end up being your best option. In a strong housing market, you can often sell your home before the foreclosure process starts, allowing you to avoid foreclosure.

6. Talk with your lender about a short sale

If you do not have any luck traditionally selling your home, you can talk with your lender about a short sale option. A short sale means you sell the home for less than the amount you owe. The sale proceeds go directly to the lender, and the lender is willing to forgive the remaining balance. Before you can consider this option, you will need to receive approval from your lender and, when given approval, include the fact that this is a short sale pending approval on all your sale listings.

7. Request a deed in lieu of foreclosure

If you cannot work out payment arrangements or sell your home in time, you can request a deed in lieu of foreclosure. With this, you transfer ownership of the home directly to the lender in exchange for a release from your mortgage obligation. This avoids a negative foreclosure report to your credit and releases you from your payment obligations.

Can you remove a foreclosure from your credit report?

As long as a foreclosure is legitimate, it cannot be removed from your credit report until the 7-year period expires. The best way to avoid a foreclosure on your credit report is to follow the tips listed above.

A foreclosure doesn’t keep you from owning a home.

While losing a home can be devastating to you and your credit, it will not keep you from owning a home again in the future. In fact, it is often possible to qualify for a new mortgage within 2-3 years after a foreclosure. At Hero Home Programs, we understand that life happens. Our goal is to help individuals and families achieve the dream of homeownership and, despite a foreclosure, we can often help. To learn more about our services, contact us online today.

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Are Brick Houses Better?

When you are looking for a new home, you are likely looking for a specific location, how many bedrooms and bathrooms it has, if the kitchen is perfect for entertaining, or if the backyard has plenty of room for the kids to play. But there is something else you should consider. What is the home made of? Are you looking at a brick home or a wood home? Is one better than the other? Are brick houses better than wood? If you are unsure as to which home is better for you and your family, we offer a closer look at the pros and cons of a brick home and how it may benefit you.

Advantages of brick homes

You probably remember the story of the little pigs and big bad wolf and how the brick home saved the pigs because it was far sturdier and able to survive the wolf trying to blow it down. Considering this story, much of it holds true when choosing a home for your family.

Let’s take a closer look at some of the pros associated with brick homes.

Durable exteriors

Brick houses can withstand the elements far better than wood or vinyl. In addition, the lack of wood in the structure of your home means that, should a fire start, it will not spread easily through the home. Bricks can withstand strong impacts and high temperatures.

Environmentally friendly

Bricks are made from a combination of clay and slate, which is natural and very abundant, as opposed to wood, which requires cutting trees. In addition, bricks are very durable, do not degrade like wood can, and, because they are all-natural materials, do not leach chemicals into the environment as treated wood does. Because bricks are so durable, they also offer the ability to recycle should you ever decide to remodel your home. For example, should you decide to remove a non-bearing wall when remodeling, you can recycle those bricks to make a path or line a garden as part of your landscaping.

Energy efficient

Bricks are extremely energy efficient and are, in fact, the most energy-efficient building material available. They help to keep your home warm in the winter and cool in the summer, helping to keep your utility bills down.

Fire and weather resistant

Clay is a very versatile material that can withstand the high temperatures of fire and withstand just about everything mother nature can deliver. Bricks can withstand high pressure, high humidity, and the normal hot or cold summer and winter temperatures. In addition, if your new home is in a location where things freeze during the winter, bricks tolerate the freeze and thaw cycle much better than any other building material. If your home is located in more tropical, high-humidity locations, bricks resist the common development of mold.

Low maintenance

Homes with wood or vinyl exteriors are often exposed to a number of different elements that can cause damage. For example, a stray baseball can dent and damage vinyl, while excessive rain can cause rot within the wood. Termites and carpenter ants can wreak havoc on wood homes. Sun and rain can cause paint or color to fade, requiring regular painting. Brick homes avoid all these changes and potential damage. In fact, most modern bricks are capable of retaining their color and look for over 20 years, meaning your home can look just as beautiful from day 1 to day 7,300.

Reduced sound

Bricks are far thicker and denser than wood, meaning that a brick-built home has the ability to better dampen sounds from the outside. This is extremely important if your home is located in a noisy neighborhood or near a major highway.

Can increase home value

Due to bricks' durability and low maintenance requirements, they tend to appreciate in value better than their wood or vinyl counterparts.

Endless design possibilities

In addition to the different hues that bricks can come in, there are also various brick sizes and finishing techniques that allow for a wide variety of different exterior appearances.

Lower insurance rates

Because brick homes offer increased durability, they are typically eight percent less to insure, meaning your home insurance premiums are likely to be lower.

Disadvantages of brick homes

While the benefits of a brick home are many, they do also come with some disadvantages. These should also be considered when deciding on a brick home.

Increased repair costs

While bricks are very durable, damage can still happen. When it does, the cost of repair is higher in terms of material and labor than it would be with a vinyl or wood home. While the damage may not occur as frequently, the extra cost is something that must be considered.

Can be challenging to remodel

If you are thinking about remodeling a brick home, they can present a challenge. To create a seamless look, you will need to match any new bricks to the existing bricks, and this can often be difficult. In addition, the construction of a brick structure is more labor-intensive and time-consuming than it is with a wood or vinyl structure.

Painting is more difficult and expensive

While bricks typically hold their color for 20 years, they will eventually fade. Adding a new color to the bricks can be expensive and difficult. Unlike wood or vinyl, bricks are not flat. They are filled with tiny cracks and grooves that make painting more difficult. In addition, you will need to paint each brick separately from the mortar.

Limited color options

If you are looking for a blue or green home, bricks may not be your best option unless of course, you like painting. For the most part, brick comes in hues of gray, red, and yellow.

Extreme fluctuations can cause damage

While bricks do well with the standard freeze-thaw cycle, they do not handle extreme temperature changes as well. For example, if you live in an area where your temperatures go from freezing winter to intense summer overnight, a brick home is not likely to do well. Bricks are unable to tolerate extreme and rapid temperature fluctuations as they do not expand and contract well. When these temperature fluctuations occur, you are likely to see shifts in the foundation and well as crumbling mortar.

Mortar decay

While bricks are very durable, the mortar isn’t quite as durable. Over the years, the mortar can start to decay and break away and will require replacement. Removing mortar and replacing it is called repointing and can be expensive.

Things you should consider before buying a brick house

When you are looking to purchase an older brick home, there are things you need to look for. These key things can be important when it comes to potential repairs or expenses down the road.

• Cracks: Look for stairstep cracks in the brickwork. This pattern of cracking is often an indication of an unstable foundation and can mean major expenses down the road.
• Mortar: Closely examine the mortar in between the bricks. Look for missing areas or signs of crumbling. These early signs may mean repainting will be needed in the near future.
• Lintels: Lintels are the areas between the windows and doors and the brick. Check these areas for any corrosion, cracks, displacement, or holes that can indicate potential problems.
• Walls: Examine every wall of the home, looking for areas where the wall may be bowing outward. This can indicate potential foundation shifts and instability in the walls.

Frequently asked questions

When it comes to brick homes, many homebuyers still have many questions. Here we answer some of the common questions when it comes to brick homes.

How long do brick houses last?
Bricks are extremely durable, and because of that, homes made of bricks can last at least 100 years with minimal maintenance. If well-cared for, such as regular repointing, brick homes can retain their beauty and structural stability for well over 500 years.

Can a brick house withstand a hurricane?
When it comes to withstanding a hurricane, it depends on the quality of the existing foundation and the type of brick structure it is. For example, a home with brick veneer siding can withstand hurricane winds up to 150mph, while a home with solid brick walls can withstand winds up to 185mph.

Are brick houses better in tornadoes?
Just like with hurricanes, brick homes can sustain the strong winds associated with tornadoes as strong as an EF2. However, it is still best to seek shelter in an inside area of the home and cover your head. Anything of an EF2 will likely cause damage to even a brick home.

Finding your dream brick home

While a brick home does offer many benefits, they are not for everyone, and you should consider these pros and cons as you look for your dream home. At Hero Home Programs, we are committed to helping families find and qualify for their perfect home, whether it is made from wood, vinyl, or brick. Contact us online today to learn how we can help you achieve homeownership.

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Are Foreclosure Homes Cheaper?

Years ago, buying a foreclosure home was often difficult for borrowers. Whether you were a first-time home buyer or an investor looking to make a profit, finding foreclosures and jumping through the hoops of the application process made them unappealing. However, after the mortgage crisis in the late 2000s, purchasing a foreclosure home has become similar to buying any other home on the market. So, how do you buy a foreclosed home? Are homes cheaper in foreclosure?

What does foreclosure mean?

When a borrower takes out a mortgage to purchase a property, the mortgage essentially becomes a lien on the property. A home foreclosure occurs when a borrower fails to meet their mortgage payment obligations on a home loan and enters into default. When this occurs, the lender then seizes ownership of the property.

How does foreclosure work?

Home foreclosure is a process that allows the lender to take possession of the property after payment default. Foreclosure has multiple stages that the lender must follow before taking complete ownership. These steps include:

• Payment default: The foreclosure process begins when the borrower misses their payment obligations. While default officially begins after the first missed monthly payment, complete mortgage default does not normally occur until after several payments have been missed.
• A notice of default: After 90 days, the lender sends a notice of default to the borrower (This timeframe can vary based on the lender). This notice starts what is known as the pre-foreclosure stage. During this stage, the lender often offers the borrower a payment plan or other potential resolution to the missed payments before the process moves forward.
• The lender takes possession: If an arrangement is not established, the lender takes possession of the property.
• Notice of trustee’s sale: The lender must record an impending sale with the local county and publish a notice in the local newspapers.
• Trustee’s sale: The home is offered up for sale at a public auction.
• Lender ownership: If the home fails to sell at auction, the lender becomes the owner.

Are homes in foreclosure cheaper?

In general, homes in foreclosure or even pre-foreclosure are offered at a price that is lower than the current market value. This happens for a variety of different reasons. In the early stages, the homeowners are trying to unload the property before they lose possession, affecting their credit report. During this time, the seller is looking to move the home quickly, and the price is often well below value. After foreclosure and during the auction stage, the sheriff’s office and the lender are not looking to hold onto a home, so the price is often lower than the market value to move the home quickly. This is also the case when the lender takes complete possession.

Types of foreclosure sales

If you are considering a foreclosure property, you need to be aware of five different types of foreclosure sales.

1. Pre-foreclosures

Pre-foreclosure sales occur when the property owner is still in possession of the home, but the lender has notified them of default. The homeowner has the opportunity to sell the home during this time to repay the mortgage lender and avoid the negative impact of a foreclosure on their credit report. These homes are typically listed in the county and city courthouses and are listed as pre-foreclosures.

2. Short sales

After the notice of default to the homeowner, the lender may agree to accept less for the property than the current mortgage balance. In most cases, the borrower must show proof of financial hardship to the lender. When this happens, the seller can list the home as a short sale property for the amount under what is owed on the mortgage and agreed to by the lender. When properties are listed as short sales, they must also list that these sales are pending lender approval. Receiving approval for a short sale can take longer than a traditional mortgage.

3. Sheriff’s sale auctions

A sheriff’s auction sale takes place immediately after the grace period following the notice of default. This auction typically takes place at the local courthouse at a pre-determined date and time. The auction is designed to sell the home quickly and allow the lender to receive their payment quickly.

4. Government-owned properties

If a property was guaranteed by a federal government program, such as an FHA or VA loan, the government repossesses the home. Once this occurs, the homes are then listed for sale through a broker working for the government agency. In order to purchase these homes, you must look for a registered broker through the U.S Department of Housing and Urban Development.

5. Bank-owned properties

If a home does not sell at auction and is not backed by a government mortgage, the ownership of the home reverts back to the lender and is considered real estate-owned property or REO property.

Pros and cons of buying foreclosed properties

As with any type of home buying situation, buying a foreclosure home comes with various pros and cons. When considering a foreclosure home, it is important to evaluate each of these before deciding.

Pros

• Lower prices: As we have mentioned above, most times a foreclosure home is listed below the current market value.
• Faster closing times: Lenders are looking to recover their investment as quickly as possible, so the purchase and closing process is typically quicker than with a traditional purchase.
• Standard loan options: Unless specified as a cash-only sale, as long as the home is in a livable condition, you can still qualify for conventional and government-backed loans.
• Investment opportunity: Buying a foreclosure home under market value and repairing any potential problems allows you to flip the home for a solid profit.

Cons

• As-is sales: Homes listed as foreclosure properties are typically sold as-is, so you may need to budget for repairs and unplanned expenses as the previous homeowners had no incentive to maintain the property's condition.
• Squatter's rights: While the home may be legally foreclosed, if it has been unoccupied for some time, it may have attracted squatters that will require legal eviction before you can take possession. This process can cost thousands of dollars in legal fees.
• You may not be able to see or inspect the home before purchase: In some cases, interior tours of a foreclosure home are not an option, and you may not really know what you are getting into.
• May need cash: If you are considering the purchase of a foreclosure home at auction, you will need the purchase amount in cash.
• Lots of competition: The market for foreclosure homes is competitive, with many real estate investors looking to scoop up a home that they can quickly flip for a profit. This means that available homes often move very quickly.

Foreclosure homes offer another path to home ownership

Foreclosure sales are not just for investors but first-time homebuyers. Hero Home Programs, we work to help individuals and families achieve homeownership, including the purchase of foreclosure properties. Contact us today to learn more about how we can help you move into your dream home.

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Jumbo Reverse Mortgage: What You Need to Know

You have worked your entire life to build equity in a high-value home. As you reach retirement, you likely have a bucket list of new hobbies, fun adventures, or places you would like to visit. But how exactly do you plan to fund all these amazing adventures? A jumbo reverse mortgage may be the answer you are looking for. What is a jumbo reverse mortgage loan, and how do you qualify?

What is a jumbo reverse mortgage?

A jumbo reverse mortgage is a supersized reverse mortgage that allows older homeowners to borrow against their equity in their high-value properties. Unlike traditional reverse mortgage loans, these loans are considered private or proprietary and are not bound by the regulations of government-backed loans. While this allows for more freedom, it also provides fewer protections for the borrower.

How does it work?

Jumbo reverse mortgages are designed for older adults over the age of 55 that have equity in a high-priced property and are looking for more cash than a government-backed reverse mortgage allows for. This loan allows for the homeowner to receive a lump sum, series of monthly payments, or a line of credit that does not require payment until a specified maturation event occurs. These events can include the borrower's death, the selling or transferring of the property, the home no longer being used as the primary residence, or the borrower failing to maintain property taxes and homeowners’ insurance payments.

How much can you borrow?

How much you can borrow with a jumbo reverse mortgage depends on the appraised value of your home, how much equity you have, and your age at the time of application. The maximum amount allowed is $4 million.

Jumbo vs. FHA-insured reverse mortgages

Jumbo reverse mortgages are considered private or proprietary loans and, unlike FHA-Insured loans, are not required to abide by the Department of Housing and Urban Development rules. While an FHA-insured reverse mortgage requires a minimum borrower age of 62, you can apply for a jumbo reverse mortgage at the age of 55. In addition, a jumbo mortgage allows the borrower to receive a full lump sum amount payment upfront while they are not required to have mortgage insurance.

Why should you consider getting a jumbo reverse mortgage loan?

When you own a high-value home where you owe little to nothing, a jumbo reverse mortgage can be a powerful tool for your retirement.

1. Eliminate larger mortgage balance

Suppose your original home purchase required a jumbo loan, and you are currently carrying a jumbo loan balance. In that case, a jumbo reverse mortgage can take advantage of the equity you have in the home and use it to pay off your original loan balance, eliminating a monthly mortgage payment that may become unaffordable.

2. Ability to have more available equity

A jumbo reverse mortgage allows you to take advantage of the equity in your current home, giving you the cash available to support your retirement and provide a safety net.

3. You need to remodel the home

As you age, you may experience health changes that require you to make safety upgrades to your home to allow you to maintain your home residence. For example, mobility challenges may require a wheelchair ramp or a stairlift. A jumbo reverse mortgage allows you to make these home improvements.

4. Robust borrower protections

Government-backed reverse mortgages typically offer a wide range of built-in protections, such as protecting the borrower from paying the difference if the loan balance rises higher than the home's current value and allowing a spouse to remain in the home after the borrower’s death. While jumbo reverse mortgages offer similar protections, every loan is different, and you must check with your lender to ensure which protections are offered.

Pros and cons of jumbo reverse mortgage

As with any home loan program, there are many pros and cons associated with a jumbo reverse mortgage. When choosing a loan option, it is important to weigh the pros and cons to determine which option is best for you.

Pros

• A jumbo reverse mortgage offers a more significant borrowing amount
• You can receive a lump-sum payout or line of credit
• Mortgage insurance is not required
• You do not need to wait until 62 to apply for the loan and can apply as young as 55 years of age
• More homes qualify as they do not need to be approved by the FHA

Cons

• Your loan has a higher interest rate than FHA-backed reverse mortgages
• Borrower protections may not be as robust as FHA-backed reverse mortgages
• Lack of guidelines increases the risk of mortgage scams
• Limited time for an open line of credit

Eligibility and requirements

Because government rules do not regulate jumbo reverse mortgages, eligibility requirements can vary by lender. However, common requirements include being at least 55 years of age, using the home as your primary residence, and having at least 50 percent equity in the home.

Enjoying retirement with a jumbo reverse mortgage

You have worked hard to reach your retirement, and you should enjoy your golden years. A jumbo reverse mortgage allows you to take advantage of all your hard work and the equity you have created during your lifetime. However, because these loans are not government-backed, they can increase your risk of mortgage scams.

At Hero Home Programs, we work to help ensure borrowers receive the loans they need to maintain their homes and lifestyle. Contact us today to learn how we can help you receive a jumbo reverse mortgage with a reputable lender and have the retirement you deserve.

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